Robert Bork, Antitrust Revolutionary

Economic Subversive

This week brought the sad news that Robert Bork has died, at the age of 85.  Bork had a long and varied career.  (See here and here for remembrances.)  He served in the Marine Corp from 1945-46 and graduated from the College at the University of Chicago in 1948.  He then matriculated at the University of Chicago Law School, which he left to rejoin the Marines during the Korean War.  After Law School he served as a fellow in Law and Economics for one year, practiced law at Kirkland and Ellis in Chicago and then joined the faculty at Yale Law School.  While at Yale, President Nixon nominated and appointed Bork to serve as Solicitor General of the United States in 1973, where Bork served until the end of the Ford Administration in January 1977.  President Reagan nominated Bork to the United States Court of Appeals for the District of Columbia Circuit in 1981 and appointed him after Senate confirmation in 1982.   He retired from that court in 1988.  President Reagan nominated Bork to the Supreme Court in 1987, but the U.S. Senate ignominiously refused to confirm him.  This essay, by former Tenth Circuit Judge Michael McConnell, now Director of the Stanford Constitutional Law Center, explains why the Senate's rejection of Judge Bork helped politicize the Court and diminish the Rule of Law.

Most of the punditry and analysis following Judge Bork's death has focused on his views on the Constitution, particularly his strong and articulate support for an "originalist" approach to constitutional interpretation.  These commentaries have ignored Bork's tremendous influence in another field, namely, Antitrust Law.  For instance, the main piece in the New York Times on Bork's passing, while over 2,000 words long, contains only a brief paragraph about his contributions to antitrust law.  CNN's story on the occasion of Bork's death does not mention Bork's contributions to antitrust law at all, aside from a brief quote of Justice Scalia, who lauds Bork's influence over the field.  Other essays have, like Judge McConnell's, focused on the implications of Bork's nomination and rejection for the confirmation process and the integrity of the courts.  (See here and here.)  These oversights are unfortunate.   Simply put, Bork helped revolutionize the way that scholars, judges and enforcement officials view the appropriate scope of antitrust regulation and thus the role of the federal government in the nation's economy.  More precisely, no individual scholar had a greater influence on antitrust law and policy than Robert Bork.

Many know Bork from his classic book, The Antitrust Paradox, published in 1978.  For instance, one remembrance states "The Antitrust Paradox, published in 1978, shifted the entire focus of antitrust policy toward consumer welfare," without mentioning any previous work.  (See also several similar statements by various participants in this National Review symposium.)   However, Bork's campaign to revolutionize Antitrust started more than a decade and a half before publication of the Antitrust Paradox.   In particular, while at Yale (ironically?) Bork laid the foundation for the so-called "Chicago Revolution" in antitrust law and policy with a series of articles published between 1961 and 1968.  The Antitrust Paradox drew upon these arguments.     In these works, Bork made two broad and fundamental contributions to antitrust analysis, one normative and one technocratic.

As a normative matter, Bork argued that the antitrust laws should have one goal and one goal alone, namely, the maximization of consumer welfare, which Bork equated with allocative efficiency and thus total economic welfare.  To be sure, other scholars embraced a "total welfare" approach before Bork did.  In particular, and as I explained in this article, Harvard-school economists Edward Mason, Donald Turner, and Carl Kaysen also embraced "total welfare" as an exclusive goal of antitrust regulation.  However, Bork's work differed from the work of these scholars in two ways.  First, Bork expressly linked "total welfare" and "efficiency" to "consumer welfare," whereas the Harvard School had not employed the latter term, choosing instead to focus only on "efficiency" as the appropriate goal.  Second, unlike these Harvard scholars, Bork offered a legal defense of total welfare/consumer welfare as an antitrust goal.  In particular, after a thorough review of the legislative history of the Sherman Act, Bork argued that the Congress that passed the Act only "intended" to ban those restraints that reduced total welfare, thus leaving those that enhanced efficient resource allocation unscathed.  See Robert H. Bork, Legislative Intent and the Policy of the Sherman Act, 9 J. L. & Econ. 7 (1966).  Bork also argued that, even if Congress's goal was unclear, courts should nonetheless pursue "consumer welfare" exclusively, because the pursuit of any other goal (e.g., a fair distribution of income) or combinations of goals (e.g. protection of small businesses and efficiency) would require courts to make value choices and trade-offs that were properly left to the legislature.  See  Robert Bork, The Goals of Antitrust Policy, 57 American Econ. Rev. (Papers and Proceedings) 242 (1967).  Some scholars have taken issue with Bork's equation of "consumer welfare" with total welfare, with one scholar referring to this claim as "something [Bork] made up." (See also here for an argument that Congress meant to ban all restraints that increased consumer prices in a relevant market, even if the practice increased total welfare.)    Correct or not, Bork's claim was highly influential.  Indeed, in Reiter v. Sonotone, 442 U.S. 330, 343 (1979) the Supreme Court announced that Congress intended the Sherman Act as a "consumer welfare prescription," citing the Antitrust Paradox for this proposition.

As a technocratic matter, Bork proposed the sort of radical reform in antitrust doctrine necessary to make "consumer welfare" as he defined it the exclusive priority of antitrust law.   Perhaps most famously, Bork rehabilitated the distinction, made famous by William Howard Taft, between "naked" and "ancillary" restraints.  See Addyston Pipe and Steel Co. v. United States, 85 F. 271 (6th Cir. 1898).  Like Taft, Bork argued that naked restraints should be unlawful per se, while ancillary restraints should be analyzed under a forgiving rule of reason.   Moreover, Bork also contended that early Sherman Act case law followed Taft's template, even though courts sometimes used different formulations when articulating antitrust doctrine.  In particular, Bork concluded that Taft's formulation anticipated the "Rule of Reason," articulated in Standard Oil v. United States, 221 U.S. 1 (1911) (discussed here), which banned only those restraints that "unduly restrain trade" by producing "monopoly or its consequences."  See Robert H. Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market Division, 74 Yale L. J. 775 (1965).  Moreover, employing the latest economic theory of the time (and theory that is still adequate for such purposes today), Bork explained why this distinction between "naked" and "ancillary" restraints would produce results that would maximize "consumer welfare" as he defined it.  See Robert H. Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market Division, part II, 75 Yale L. J. 373 (1966).   Thus, Bork explained that ancillary restraints could align the incentives of individual venture participants with the welfare of the overall venture and thus produce significant efficiencies and enhance the allocation of resources.  In so doing, he argued persuasively for the expansion for the category of restraints deemed "ancillary" to otherwise lawful objectives.  For instance, relying upon the work of Lester Telser, Bork explained how minimum resale price maintenance or exclusive territories imposed by manufacturers or joint ventures could ensure that dealers or venture partners made adequate investments in promotion, instead of "free riding" on the efforts of other dealers or partners. (Unlike Telser, who had focused only on vertical minimum rpm, Bork focused on horizontal and vertical price and non-price restraints.)   In so doing, Bork drew on the work of Ronald Coase, whose 1937 article on the Nature of the Firm would help Coase earn the Nobel Prize in Economic Science in 1991.  Thus, Bork was an early pioneer in applying transaction cost economics to antitrust problems.   (See here, at pp. 53-54 for an account of Bork's early invocation of Coase and transaction cost considerations).  During this same period, Richard Posner, a later convert to Chicago thinking, contended that non-price vertical restraints rarely produced benefits and should this be presumptively unlawful.

The Supreme Court endorsed Bork's reasoning in Continental T.V. v. GTE Sylvania, 433 U.S. 36 (1977), holding, contrary to previous precedent, that non-price vertical restraints could prevent "free riding" and thus may produce "redeeming virtues" of the sort that preclude per se condemnation.  Instead, the Sylvania Court said, courts should analyze such agreements under a forgiving rule of reason.  (Note that the Court issued Sylvania before publication of the Antitrust Paradox.)  Less than a decade later, the Court applied similar reasoning in the context of horizontal restraints, invoking Sylvania and subsequent work of Judge Bork for the proposition that horizontal agreements between members of  sports leagues could enhance the quality of the league's product, thereby preventing per se condemnation of such restraints.    See NCAA v. Board of Regents of the University of Oklahoma, 464 U.S. 85 (1984).  Shortly thereafter, the Court extended Sylvania, holding that an agreement between a manufacturer and a dealer to terminate another dealer for price cutting was not unlawful per se.  See Business Electronics v. Sharp Electronics, 485 U.S. 717 (1988).  Nearly a decade later, the Court unanimously reversed the per se ban on maximum resale price maintenance.  See State Oil v. Khan, 522 U.S. 3 (1997).  More recently, in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), the Court overturned a 96 year old ban on minimum resale price maintenance, relying upon the work of Bork and others for the proposition that such agreements could combat free riding and thus facilitate promotion of a manufacturer's product.  Each of these decisions, from Sylvania through Leegin, cited Bork's academic work with approval.  To be sure, these decisions cited the work of other scholars as well, but at least some such work simply repeated what Bork had already said a decade or more earlier.

Bork's influence was not confined to the definition and treatment of ancillary restraints.  He also leveled powerful critiques at the Supreme Court's hapless and wealth-destroying merger doctrine, exemplified by cases such as Vons Grocery v. United States, 384 U.S. 270 (1964) and Brown Shoe Co. v. United States, 370 U.S. 294 (1962).  See Robert H. Bork, Anticompetitive Enforcement Doctrines Under Section 7 of the Clayton Act, 39 Tex. L. Rev. 832 (1961).    In both decisions the Supreme Court banned, as contrary to section 7 of the Clayton Act, mergers between firms with small shares in markets characterized by ease of entry.  (In Vons, for instance, the firm created by the challenged merger would have had 8 percent of a market with over 3,000 remaining firms.)  As Bork explained, such mergers could not create or facilitate the exercise of market power.  It was thus logical to infer that parties to such transactions hoped to achieve efficiencies. Bork also leveled powerful critiques against overly intrusive standards governing alleged predatory activity, particularly often-unfounded claims that refusals to deal or vertical integration disadvantaged rivals without creating offsetting efficiencies and thus injured consumers.  See Robert Bork and Ward Bowman, The Crisis in Antitrust, 65 Columbia L. Rev. 363 (1965); Robert H. Bork, Vertical Integration and the Sherman Act, 22 U. Chi. L. Rev. 157 (1954).  In 1986, the Supreme Court, in a unanimous opinion by Justice Stevens, invoked Bork's test for evaluating alleged predatory conduct.  See Aspen Highlands v. Aspen Highlands Ski Co., 472 U.S. 585, 597 n. 33 (1986)(citing the Antitrust Paradox for the proposition that conduct was only predatory if it excluded rivals on some basis other than efficiency).

Obviously Bork was not the only participant in the Chicago Antitrust Revolution.   Moreover, many outside the Chicago School endorsed Chicago School critiques of current doctrine and proposals for reform.  For instance, Bork's work led Harvard School icon Donald Turner to reverse his views on vertical restraints.  However, the record shows that Bork led the way and employed reason, not force, to convince others to follow.

Amicus Brief of Antitrust Professors in Hosana Tabor v. Equal Opportunity Commission

This blogger has signed an Amicus Brief in a case pending before the Supreme Court of the United States. The case is Hosana Tabor v. Equal Opportunity Commission, (For a summary of the case, including a link to the various briefs, including amicus briefs, in the case, go here. The opinion in the 6th Circuit that the petitioner is asking the Supreme Court to reverse, can be found here.) Professors Barak Richman of Duke Law School and Harry First of NYU, both leading scholars of antitrust law, co-authored the brief.

The petitioner in the case is a Lutheran church and elementary school that dismissed an employee who taught music and other secular subjects but who also taught daily religion classes, was a commissioned minister and also regularly led her class in prayer. The dismissed teacher claimed that the dismissal violated the Americans with Disabilities Act, and the EEOC intervened in support of the teacher. The 6th Circuit Court of Appeals held that the so-called ministerial exception did not apply, with the result that the plaintiff's suit could go forward on the merits. In particular, the court found it noteworthy that the teacher spent most of her workday teaching secular subjects from secular materials and could not recall bringing religious themes into her secular classes more than twice during her tenure. The court remanded the case to the district court for a determination of whether, in fact, the school had violated the ADA., and the petitioner sought review in the Supreme Court.

The Supreme Court granted certiorari to answer following question:

"Whether the ministerial exception, which prohibits most employment-related lawsuits against religious organizations by employees performing religious functions, applies to a teacher at a religious elementary school who teaches the full secular curriculum, but also teaches daily religion classes, is a commissioned minister, and regularly leads student in prayer and worship."

The amicus brief advises the Court not to expand the scope of the ministerial exception in a way that would provide immunity to professional associations of clergy who engage in concerted action of the sort that produces monopoly or its consequences and is thus unreasonable and unlawful under Section 1 of the Sherman Act. Indeed, at least one professional association of clergy has claimed that horizontal concerted action by the association's members falls within the ministerial exception and is exempt from the Sherman Act. (Professor Richman summarizes the policies of this association, the Rabbinical Assembly, and why they are problematic under the Sherman Act here.) As the brief explains, such concerted action among rivals can reduce competition among clergy for particular positions and also limit the number of clergy whom individual congregations can interview and offer positions, thereby increasing the bargaining leverage of such clergy. Moreover, such conduct does not fall within the contours or rationale of the ministerial exception, which applies in the context of employer-employee relationships between, say, a church or synagogue and its minister or rabbi. Indeed, as the brief explains, limiting the exception to cases involving the employer/employee relationship would not prejudice the petitioner's case at all and would instead protect the ability of other congregations to search for and hire clergy of their choice without interference from unlawful concerted action.

Happy Birthday Standard Oil v. United States, 221 U.S. 1 (1911)

Probably a Better than Average Investment at the Time

Didn't Live to 100, But His Greatest Decision Did

Sunday May 15 was the 100th birthday of Standard Oil v. United States, 221 U.S. 1 (1911). Authored by Chief Justice Edward D. White, pictured above, Standard Oil is the most important antitrust decision ever, having articulated certain fundamental principles that still animate antitrust law. Here are a few examples of Standard Oil's enduring principles, followed by some additional thoughts.

1. Standard Oil confirmed what was at least implicit in several prior decisions, namely, that the Sherman Act does not ban all contracts that "restrain trade" in the ordinary sense of that phrase. Instead, the Court said, the statute only bans agreements that restrain trade "unduly" by producing "monopoly or its consequences." To determine whether a contract produces such consequences, Standard Oil said, courts should employ "reason." Thus was born the Sherman Act's "Rule of Reason." Some, including Justice Harlan in dissent, argued that this Rule of Reason was a departure from prior case law which had purportedly banned all restraints of trade. However, as Chief Justice White explained for the Court, prior decisions had banned only "direct" restraints, leaving so-called "indirect" restraints entirely unscathed. See e.g. United States v. Joint Traffic Ass'n, 171 U.S. 505 (1898). Moreover, White continued, courts had employed "reason" to distinguish "direct" from "indirect" restraints, treating as "direct" only those restraints that produced monopoly or its consequences. Thus, he (properly) concluded, the "direct/indirect" test and the "Rule of Reason" would, if properly applied, would reach identical results. William Howard Taft, then President of the United States, agreed with the Court's assessment of precedent and expressed that agreement in a December 2011 message to Congress.

2. After examining both English and American sources bearing upon the meaning of the term "restraint of trade," the Court identified three possible "consequences of monopoly," the presence of which would require condemnation of a restraint because it restrained trade "unduly," namely output reduction, price increases, and reductions in quality. The mere fact that an agreement restricted the freedom of action of the parties to it did not suffice to render it a "restraint of trade" within the meaning of the statute. Courts still adhere to this principle today, requiring a showing or inference of tangible economic harm before condemning a restraint. For instance, in Continental T.V. v. G.T.E. Sylvania, 433 U.S. 36, 53 n. 21 (1977), the Court pointed out that all contracts restrain trade, and concluded that courts should only consider the objective economic effects of agreements when conducting Rule of Reason analysis. Thus, Standard Oil rejects assertions that courts should consider non-economic values, such as the autonomy of traders, when given content to the Sherman Act.

3. Any broader reading of the statute, e.g., one that applied "its prohibitions to any case within its literal language" would contravene the Constitution's protection for liberty of contract or, in the Court's words "be destructive of all right to contract or agree or combine in any respect whatever as to subjects embraced in interstate trade or commerce." Thus, instead of reading the statute broadly so as to ban each and every agreement that reduced competition in one way or another, the Court held that reasonable restraints of trade were protected by liberty of contract and thus beyond the reach of the statute, even if they otherwise restrained interstate commerce. Protection of such restraints, the Court said, was the best way to ensure a well-functioning competitive order.

"[T]he omission [from the Sherman Act] of any direct prohibition against monopoly in the concrete, indicates a consciousness that the freedom of the individual right to contract, when not unduly or improperly exercised, was the most efficient means for the prevention of monopoly, since the operation of the centrifugal and centripetal forces resulting from the right to freely contract was the means by which monopoly would be inevitably prevented if no extraneous or sovereign power imposed it and no right to make unlawful contracts having a monopolistic tendency were permitted. In other words, that freedom to contract was the essence of freedom from undue restraint on the right to contract."

The Supreme Court reiterated this insight, albeit without mentioning liberty of contract, nearly six decades later, citing Standard Oil for the proposition that Congress could not have meant to ban all private contract law because that body of law "establishes the enforceability of commercial agreements and enables competitive markets -- indeed, a competitive economy -- to function effectively." See National Society of Professional Engineers v. United States, 435 U.S. 679 (1978).

4. As a corollary to the ban on "undue" restraints, Standard Oil's Rule of Reason implied a safe harbor for "normal," "usual," or "ordinary" agreements. Indeed, the Court condemned the Standard Oil trust precisely because its growth, the Court said, was "not as a result of normal methods of industrial development[.]" Or, as the Court put it in the American Tobacco Co. v. United States, 221 U.S. 106 (1911), decided two weeks later: "[Standard Oil held] that the statute did not forbid or restrain the power to make normal and usual contracts to further trade by resorting to all normal methods, whether by agreement or otherwise, to accomplish such purpose." American Tobacco, it should be noted, reaffirmed Standard Oil's promulgation of the Rule of Reason and held that a similar analysis, including the distinction between undue and normal/usual/ordinary restraints, should control courts' determination whether a defendant has "monopolized" interstate commerce contrary to Section 2 of the Sherman Act. Subsequent decisions confirmed that a contract or other practice was "normal" or "ordinary" and thus beyond the scope of Congress's power to regulate under the Sherman Act or Clayton Act if it was the type of practice a firm would adopt without regard to the practice's propensity to obtain or maintain market power. See FTC v. Sinclair Oil, 261 U.S. 463 (1923) (holding that the Clayton Act did not empower the Commission “to interfere with ordinary business methods); FTC v. Gratz, 253 U.S. 421 (1920) (same). Courts still employ this approach under Section 2 of the Sherman Act, refusing to condemn conduct that reduces a firm's costs, even if such conduct should maintain or create a monopoly.

5. Standard Oil and its Rule of Reason require a "common law," dynamic approach to the Sherman Act. By its nature, the decision's "Rule of Reason," with its focus on the consequences produced by a challenged restraint, precludes any reading of the statute that would freeze in place a list of restraints that are prohibited or, for that matter, list of restraints that are not prohibited. Instead, the Court held that the statute provides courts with the flexibility to treat particular restraints differently over time, depending upon judges' assessment of the economic consequences of such restraints. Such assessments can change as economic conditions change or as evolving economic theory sheds new light on the impact of particular restraints, leading courts to "translate" the principles animating the Rule of Reason in light of new information. (See pp. 89-92 of this article for additional articulation of this point.) Thus, the Standard Oil Court expressly noted that restraints or other practices that appear harmful at one point in time can, decades or century later appear beneficial or vice versa, thereby justifying different legal treatment. The Supreme Court has repeatedly endorsed this approach. In 1988, for instance, the Court cited Standard Oil for the proposition that "[t]he Sherman Act adopted the term "restraint of trade" along with its dynamic potential. It invokes the common law itself, and not merely the static content that the common law had assigned to the term in 1890." See Business Electronics Corp. v. Sharp Electronics, 485 U.S. 717 (1988). This "dynamic potential," the Court said, included the ability to overrule previous decisions banning particular restraints when advances in economic theory undermined the economic premises of such earlier decisions. See also Continental T.V. v. G.T.E. Sylvania, 433 U.S. 36 (1977) (discarding per se rule against non-price vertical restraints based upon changed economic understanding of such agreements). This dynamic approach has served antitrust law well, as it has allowed courts the flexibility to adjust legal doctrine in response to changed conditions and insights, thereby minimizing the need for Congress to amend the Sherman Act in response to such changes.

Readers interested in further development of these themes may want to consult pp. 83-92 of this article.

Some additional observations:

First, the Standard Oil opinion was extremely controversial at the time as was the American Tobacco decision. Justice Harlan issued a lengthy and vehement dissent, in which he accused his brethren of judicial activism, ignoring precedent and reaching a result unduly favorable to trusts. Harlan even claimed that the Court's purported activism would undermine the public's faith in a neutral judiciary. Harlan's dissent helped fuel similar criticism by commentators and political partisans off the Court. Many criticized President Taft, who had appointed Chief Justice White, and these criticisms no doubt helped motivate Taft's lengthy message to Congress defending the decision mentioned above. Though highly controversial at the time, the Supreme Court unanimously invoked and applied the Rule of Reason just seven years later in Chicago Bd. of Trade v. United States, 246 U.S. 243 (1918), and the stands to this day.

Second, some criticism of Standard Oil reflected a fear that Chief Justice White's version of the Rule of Reason would empower courts to sustain price fixing agreements that set reasonable prices, contrary to what some saw as the holdings of prior decisions. Indeed, dissenting in United States v. Trans Missouri Freight Association, 166 U.S. 290 (1897) , then Associate Justice White, in an opinion joined by Justices Field, Gray and Shiras, argued that a ban on horizontal agreements setting reasonable prices would violate firms' liberty of contract, an argument the Court rejected, at least in the context of railroad corporations that had received special privileges from states where they operated, in both Trans-Missouri Freight and United States v. Joint Traffic Ass'n, 171 U.S. 505 (1898). (In Addyston Pipe and Steel Co. v. United States, 175 U.S. 211 (1899), by contrast, the Court first sustained the lower court's finding that the cartel set unreasonable prices before (unanimously) holding that the price fixing in question was a direct restraint of interstate commerce in violation of the Sherman Act.) However, Standard Oil does not address one way or the other whether in fact horizontal agreements setting reasonable prices would survive scrutiny under the Rule of Reason. Thus, future decisions condemning such price fixing without regard to the reasonableness of the price set did not contravene Standard Oil. See e.g. United States v. Trenton Potteries, 273 U.S. 392 (1927) (condemning agreement between firms with 80 percent share of the relevant market without regard to reasonableness of the price set).

Third, principles announced in Standard Oil apply equally to Section 1 and Section 2 of the Sherman Act, as the Court confirmed in the American Tobacco mentioned earlier in this post. Section 1, of course, applies to "concerted action," that is, an agreement between two or more parties. Section 2, by contrast, applies only to conduct that is "unilateral." At the same time, the modern Rule of Reason applied under Section 1 differs from that applied under Section 2 in two ways. First, courts analyzing concerted action under Section 1 purportedly "balance" any harms that a restraint produces against any benefits, in an effort to determine which impact predominates. (See pp. 98-113 of this article for a general discussion of this analysis and some of the issues that arise; see also this comprehensive article about how modern courts conduct rule of reason analysis.). By contrast, courts analyzed challenged conduct under Section 2 conduct no such balancing. Thus, in the Section 2 context, proof that challenged conduct produces significant benefits that cannot be achieved in some other way ends the case, without regard to whether such conduct outweighs any purported harms. Second, when balancing harms versus benefits under Section 1, courts purport to ascertain whether the restraint increases or decreases prices paid by consumers, thus implementing a "purchaser welfare standard." Under Section 2, by contrast, courts treat the prices paid by purchasers as beside the point. Thus, if conduct is "normal" or "usual" because it produces benefits independent (See pp. 673-86 and 708-15 of this article for a demonstration that courts implementing Section 2 have never focused on the welfare of purchasers but have instead articulated doctrine that seeks to ban only that conduct that reduces overall economic welfare). At some point, it seems, courts will have to reconcile these contradictions.

On the Distinction Between Regulation and Enforcement: Why the Antitrust Division is Apparently Exceeding its Authority

NCAA Commissioner-in-Chief?

NCAA Vice-Commissioner in Chief?

When running for President, Barak Obama (pictured above receiving a gift from 2010 BCS champion Alabama) made no secret of his desire to replace the current BCS Bowl system with an eight team national playoff to determine college football's champion. Moreover, nearly two years ago, Seantor Orrin Hatch, pictured below President Obama, called for an antitrust investigation of the BCS system. Last week the Antitrust Division of the Department of Justice finally "got the hint," and sent a letter to the NCAA seeking an explanation for the association's failure to adopt a playoff system similar to that employed in some other college sports, including, e.g., college basketball.

The letter does not formally or informally charge the NCAA with any violations of the antitrust laws or any other federal law. Nor does it articulate or even adumbrate any argument that the BCS system, which is a particular form of playoff system, and/or the means used to enforce it violate the antitrust laws. Instead, the letter begins by noting that the Attorney General of Utah, hardly a disinterested party (the state's two best college football teams are in conferences whose winners do not automatically qualify for a BCS bowl), has announced an intent to challenge the BCS under the antitrust laws. The letter also notes that 21 economists --- a miniscule fraction of the nation's economists --- have filed a memorandum with the Division calling for an antitrust investigation of the BCS system. Finally, the letter notes that "other prominent individuals have publicly urged the Antitrust Division to take action against the BCS."

The DOJ's letter is perplexing to say the least. The Antitrust Division is charged with enforcing the nation's antitrust laws, period. That is to say, the Division is charged with determining whether a given restraint, by reducing pre-existing competition, reduces consumer welfare. However, the letter reads more like a request from a congressional committee considering regulatory legislation or an adminstrative agency charged with promulgating New Deal style "public interest" regulation. Thus, the letter asks open-ended questions that are untethered to any recognizable standard of antitrust liability. For instance, the letter asks why "the Football Bowl Subdivision does not have a playoff" and "[w]hat steps does the NCAA plan to take to establish a playoff at this time?" Finally, and most oddly, the letter asks "[h]ave you determined that there are aspects of the BCS system that do not serve the interests of fans, colleges, universities and players?" To what extent would an alternate system better serve those interests?"

These questions suggest that the Antitrust Division is conducting an inquiry that exceeds its jurisdiction, that is, that the Division is seeking to leverage its authority to enforce the antitrust laws to determine whether, say, an 8 team playoff system is superior to the current BCS system and then to foist upon the NCAA the results of the Division's analysis. Would it be sheer coincidence if Division determines that the best system is the one preferred by the President of the United States, who can hire and fire the head of the Antitrust Division at will?

But don't the antitrust laws require the NCAA to adopt the optimal system of determining a national champion? After all, many have argued that antirust should ban those restraints that reduce economic welfare. Certainly not. The Sherman Act forbids contracts, combinations and conspiracies in restraint of trade or commerce among the several states. A century ago, in Standard Oil v. United States (discussed here in a subsequent post), the Supreme Court held that only contracts that produce "the consequences of monopoly" restrain trade within the meaning of the statute. There are, the Court said, three such consequences: higher prices, reduced output and reduced quality. (A modern economist would recognize these consequences as different manifestations of an exercise of market power.) A restraint that produces none of these consequences cannot violate the Sherman Act, regardless of its other effects and regardless of whether a different restraint would produce even more social benefits. (For a summary of Standard Oil's Rule of Reason, see pp. 83-92 of the article found here.) The Supreme Court has repeatedly reiterated that Standard Oil properly states the law under Section 1 of the Sherman Act. See e.g. National Society of Professional Engineers v. United States, 435 U.S. 679 (1978). Indeed, and ironically, the Antitrust Division's own guidelines for examining "collaboration among competitors" provide that "Rule of reason analysis focuses on the state of competition with, as compared to without, the relevant agreement." (See Competitor Collaboration Guidelines, Section 1.2; id. at Section 3.1) There is no suggestion that such analysis entails comparison of the challenged restraint to a restraint that has never existed in the hope that the latter restraint would better serve the interests of society and consumers.

It's difficult if not impossible to square the Antitrust Division's letter with any effort to enforce Section 1's Rule of Reason or for that matter its own enforcement guidelines. Under Standard Oil, the question for the Division is straight-forward, if difficult to answer. Does the BCS system adopted in 1998 --- the first effort to create a true national championship game --- reduce output, raise prices or reduce quality compared to the system that preceded it, that is, the status quo ante? That status quo ante, in turn, involved no playoff whatsover, but instead an uncoordinated "system" of numerous bowls, each promoted separately. The relevant question is NOT whether the Antitrust Division, 21 economists, or a court can imagine a different completely hypothetical system, e.g., an 8 team playoff, that would serve consumers and various other groups even better than the current system. Indeed, if Rule of Reason analysis did turn on this sort of hypothetical inquiry, the Sherman Act would rapidly become a license for a form of central planning. Any number of firms, after all, enter long term ventures or contracts that restrain parties to them and thus "reduce competition." However, most such agreements properly survive Rule of Reason scrutiny because they produce no harm in the first place or produce only benefits compared to the status quo ante. Thus, an antitrust standard banning harmless or beneficial restraints simply because a different practice would be even more beneficial for all concerned would empower courts and the antitrust enforcement agencies to examine any agreement to determine whether some other agreement would produce even more benefits. For instance, such an approach would authorize courts and the enforcement agencies to examine any merger to determine whether a different transaction produced even more benefits. Such an approach would be unprecedented and radically change the nature of antitrust regulation and contravene Standard Oil's fundamental premise that Section 1 should leave market actors free to exercise their contractual liberty as they see fit absent proof that the restraint in question produces antitrust harm compared to the status quo ante. The parties to various restraints, disciplined as they are by a free market, know far better than the enforcement agencies whether there might be some other arrangement that serves the interests of themselves and thus society even better.

Antitrust officianados might ask "but what about the less restrictive alternative test; don't courts conducting Rule of Reason analysis ask whether a challenged restraint is the least restrictive means of achieving the restraint's purported objective?" Yes, but only in narrow circumstances. (See pp. 110-113 of this article for an explanation of the role of less restrictive alternatives in Rule of Reason analysis.) That is to say, courts only ask whether there is a less restrictive means of achieving a restraint's objective if a plaintiff first shows that the challenged restraint produces antitrust harm compared to the status quo ante. Absent such a showing, the presence or not of such an alternative is simply irrelevant under current law, including the Division's own enforcement guidelines quoted above. Or, as Judge Frank Easterbrook put it in Chicago Professional Sports Ltd. Partnership v. NBA, 95 F.3d 593 (7th Cir. 1996) ("The Antitrust Laws do not deputize district judges as one man regulatory agencies. The core question in antitrust is output. Unless a contract reduces output in some market, there is no antitrust problem."). Ironically, the last question in the Division's letter quoted above, which asks whether there is another system that would improve everyone's welfare, seems to amount to an implicit concession that current system does not produce antitrust harm in the form of an exercise of market power that reduces output. For, if it did, then it's hard to imagine how a more competitive alternative would improve the welfare of consumers AND producers, the latter of whom benefit from reduced output flowing from exercises of market power.

None of this is the say that the BCS system would, in fact, survive scrutiny under an antitrust test that properly implements Standard Oil's Rule of Reason. The 21 economists mentioned above have argued that the BCS system entails a cartel between four bowls --- Fiesta, Orange, Sugar and Rose --- that were previously independent and unilaterally decided which teams to invite. The BCS system, these economists argue, disadvantages those schools from non-BCS conferences, that is, conferences whose winners do not automatically qualify for a BCS bowl and thus "injures schools in major college football's five other conferences . . . and also harm consumers by restraining output, fixing prices and reducing quality." The result, it is said, "is a marked change from the pre-BCS era, when non-traditional teams frequently competed for college football's national championship" (at least as measured by polls of sportswriters and coaches). It should be noted that, if these economists are correct, the appropriate remedy is emphatically NOT to impose an 8 team playoff, but instead to return to the status quo ante, where each bowl decided whom to invite and where to televise its product independent of the others.

There are, of course, significant counter-arguments to the claim that the BCS system is an unreasonable restraint of trade. For instance, the mere fact that the BCS entails horizontal cooperation between potential rivals does not transform it into a naked and presumptively illegal cartel. As the Supreme Court recognized in NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1986), college football necessarily requires some horizontal cooperation, including cooperation about the size of salaries paid athletes, that would otherwise be unlawful. Moreover, each college football conference is itself a "cartel" that, for instance, determines the number of games played by its member teams ("output") and divides revenue among various schools, sometimes allocating significant revenue to schools that had losing records during the season in question. Nor is it always apparent what measure of price or output the 21 economists are referring to; there were 35 bowl games at the end of the 2010-2011 season. Are the economists asserting that there would have been even more such games absent the BCS? Perhaps more importantly, are they including "quality" within their measure of output? (All sports leagues limit the "output" of games; presumably such limits survive scrutiny because they enhance the quality of the games actually played and thus maximize "output" properly understood.) Without such an output reduction, how could the BCS increase prices? What prices would have fallen without the BCS? Prices for tickets? Prices that networks charge advertisers? Prices that Bowls charge networks for the rights to televise various bowls? Finally, the 21 economists complain about facets of the BCS, e.g., its revenue sharing arrangements, that seem unrelated to any appropriate antitrust concern. Just as antitrust law is unconcerned with the choice between the BCS system and an 8 team playoff, it is also agnostic between different schemes of allocating revenue, unless a challenged scheme results in a reduction in output and resulting increase in price.

But, at least the 21 economists seem to be asking the right question, unlike the Department of Justice.

Are We More or Less Free Than Our Ancestors?

Patrick Henry


Give me (ever-increasing?) liberty or . . . . .

Over at Reason.com, David Boaz makes a provacative argument that Americans, as a whole, enjoy more liberty today than we did, say, 50, 100 or 150 years ago. Boaz's assertion is contrary to the complaints of libertarians who lament what they characterize as a continual expansion of government at the expense of individual liberty, an expansion they often measure by examining the share of GDP that government consumes.

Here is a link to the Boaz post:

http://reason.com/archives/2010/04/06/up-from-slavery

Among other things, Boaz points that many accounts of a purported "Golden Age" of 19th Century Liberty ignore the institution of slavery. In the same way, many accounts of a less intrusive state early in the 20th century ignore so-called Jim Crow laws, which were of course very intrusive on human liberty, to say the least. To the extent that legal and constitutional developments (and of course the Civil War) eliminated slavery and Jim Crow laws, human liberty has increased, Boaz rightly asserts.

Boaz also makes a broader claim, namely that, overall, Americans are more free now than we were, say, two generations ago. He quotes the following argument by Brink Lindsey, from his book The Age of Abundance (2007). According to Lindsey:


"Nevertheless, the fact is that American society today is considerably more libertarian than it was a generation or two ago. Compare conditions now to how they were at the outset of the 1960s. Official governmental discrimination against blacks no longer exists. Censorship has beaten a wholesale retreat. The rights of the accused enjoy much better protection. Abortion, birth control, interracial marriage, and gay sex are legal. Divorce laws have been liberalized and rape laws strengthened. Pervasive price and entry controls in the transportation, energy, communications, and financial sectors are gone. Top income tax rates have been slashed. The pretensions of macroeconomic fine-tuning have been abandoned. Barriers to international trade are much lower. Unionization of the private sector work force has collapsed. Of course there are obvious counterexamples, but on the whole it seems clear that cultural expression, personal lifestyle choices, entrepreneurship, and the play of market forces all now enjoy much wider freedom of maneuver."

On the whole, Boaz and Lindsey make some powerful points. Indeed, they have overlooked two additional expansions of private liberty over the last two generations: 1) the substantial contraction of antitrust regulation and 2) the recognition that so-called "commercial speech" enjoys some First Amendment protection, thereby mandating the substantial deregulation of advertising. In the remainder of this post I elaborate on these two omissions but then also suggest that some of the developments invoked by Boaz and Lindsey do not necessarily reflect expansions of liberty. Indeed, those who, like Lindsey and Boaz, claim that liberty has expanded compared to prior eras must develop a defensible definition of liberty; focusing on the mere absence of coercive governmental restraint will not suffice.

A

1) Antitrust: During the 1960s courts and antitrust enforcement agencies were hostile to most non-standard contracts, that is, agreements that did more than simply mediate the passage of title from a seller to a buyer. Tying contracts, exclusive dealing contracts, restraints on prices dealers could charge and restraints on to whom and where dealers could sell a manufacturer's product --- all were unlawful per se or nearly so. In FTC v. Brown Shoe, for instance, 384 U.S. 316 (1966), the Supreme Court affirmed the Federal Trade Commission's ban on an agreement between Brown Shoe and 1 percent of the nation's shoe stores requiring such stores to do business primarily (but not exclusively) with Brown. Courts also banned all tying contracts obtained by sellers with "economic power" over a tying product, holding that the mere possession of a trademark established the requisite economic power sufficient to condemn such an arrangement. Thus, a franchisor could not, for instance, require its franchisees to purchase spices, batter mixes or paper products from the franchisor. See Siegel v. Chicken Delight, 448 F.2d 43 (9th Cir. 1971). Courts and the enforcement agencies were equally hostile to mergers. In Brown Shoe Co. v. United States, for instance, the Department of Justice challenged, and the Supreme Court condemned, a merger that resulted in a firm with an eight percent share in a market with more than 3,000 other market participants and low barriers to entry. (About 150 new firms had entered the market in recent years.)

All of this started to change in the late 1970s, by which time transaction cost economics (TCE) had undermined price theory's workable competition model and offered beneficial explanations for non-standard contracts. In Continental T.V. v. GTE Sylvania, 433 U.S. 36 (1978), the Supreme Court abandoned its hostility to non-price vertical restraints, holding that courts should analyze such agreements under a forgiving rule of reason test that validates nearly all such agreements. As the Sylvania Court recognized, such restraints, while reducing competition between dealers, can in fact overcome the market failure and resulting underproduction of promotional information that would result from unbridled competition between dealers. Subsequent decisions applied the Sylvania rationale beyond the vertical context, holding that, for instance, horizontal restraints ancillary to an otherwise legitimate joint venture can also overcome market failure, enhance the allocation of resources and improve the welfare of consumers. Justice Stevens, who recently retired, presaged this expansion of Sylvania's rationale in NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1984), when he invoked Sylvania's logic in support of his statement that a horizontal restraint over one form of competition can in fact enhance overall competition in the marketplace and thus enhance consumer welfare. I tell the story about the origin of the inhospitality tradition and TCE's overthrow of that tradition in the following paper:

Price Theory, Competition and the Rule of Reason, 2003 Il. L. Rev. 77.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=909241

During the same period, the courts and enforcement agencies also radically revised merger doctrine, holding that proof that a merger will lead to high levels of concentration in a properly-defined relevant market is necessary (but not sufficient) to justify banning such a transaction. Moreover, even if a merger did, in fact, lead to high concentration in a relevant market, the transaction would still survive scrutiny if the threat of entry would counter-act any resulting anticompetitive output reduction produced by actual or tacit collusion. In 1982 the Department of Justice essentially codified this sea change in merger policy, issuing enforcement guidelines that, had they applied in the 1950s, 1960s and 1970s, would have validated countless transactions that enforcement agencies challenged, and courts voided, during these decades.


In short, the massive shift in antitrust policy, from a regime of extreme intervention to one of comparative laisseze faire, left countless transactions, contracts and other commercial practices there were once unlawful, even though they harmed no one, unmolested by the law, thereby expanding liberty significantly.


2) Commercial Speech. During the 1970s the Supreme Court found that commercial advertising is "speech" within the meaning of the First Amendment, thereby voiding much regulation of advertising. The seminal case was Virginia Pharmacy Bd. v. Virginia Citizens Consumer Council, 425 U.S. 748 (1976), where the Supreme Court struck down a Virginia statute that banned price advertising of pharmaceutical products. Since then the Supreme Court has repeatedly held that states may not ban truthful advertisements for lawful products. The result, of course, has been more advertising, i.e., more liberty for firms that wish to provide information to consumers. Moreover, the ability to advertise makes new entry more likely, thus enhancing the liberty of firms previously excluded from the market by advertising bans. Consumers, of course, end up paying lower prices and making better-informed decisions about which products to buy or not to buy.

B

At the same time, Lindsey and Boaz may overstate their case somewhat. That is to say, not every development Lindsey invokes necessarily entails an expansion of liberty. Some may have actually reduced liberty, properly understood.

Take the rights of criminal defendants. Certainly various developments in the law over the last several decades have made it more difficult to convict a criminal defendant. These developments, then, have enhanced the liberty of those accused of crime. Still, Lindsey (and Boaz, apparently) do not consider the possibility that some individuals who escape punishment because of these developments are guilty, more precisely, guilty of interferring with someone else's liberty or property. Rules that increase the risk of letting guilty criminals off the hook can actually REDUCE liberty in a couple of ways. First, such mistakes can undermine the deterrent effect of the criminal law. Less deterrence, of course, means more crime, and thus less liberty for those who become victims of crime. In these circumstances, the state can only restore deterrence by increasing the penalties on those who are properly convicted (further reducing their liberty). Second, wrongly exonerated individuals who thereby avoid prison or capital punishment may then commit new crimes, thus interferring with the liberty of completely innocent fellow citizens. Indeed, Lindsey himself singles out the strengthening of laws against rape as a development enhancing liberty, and I quite agree. However, one cannot "strengthen" laws if prcedural developments make it too difficult to convict and punish invidiuals who break the newly-strengthened laws. Thus, any argument that enhancing the rights of the accused actually increases liberty requires a showing that the accused whose rights are enhanced are actually innocent, something Lindsey and Boaz does not assert.

Abortion provides another possible example. Lindsey (and Boaz, apparently) are certainly correct that bans on abortion reduce the liberty of the women they impact and, one might add, the liberty of the doctors who wish to perform such procedures, often for money. At the same time, proponents of abortion would argue that there is a third party involved, namely, the fetus. If, as many argue, a fetus is an actual human being, then a ban on abortion may, despite its significant impact on the liberty of the child's mother and her physician, enhance overall liberty, except of course in those cases in which abortion is necessary to protect the life of the mother, by protecting the life of the fetus until its birth. Put another way, such laws could be deemed analogous to bans on child abuse, though of course an abortion ban places a greater burden on the the regulated party than a ban on child abuse.

The rights of the accused and abortion examples, then, serve as reminders that a society that wants to maximize liberty might have to do more than simply minimize state-enforced coercive restraint on individual freedom of action. While such an approach might maximize "liberty" in some sense, it's not the sort of "liberty" that anyone, in the end, wants to maximize. (No one, I assume, would anyone think that the state should stand idly by while one individual used private force to enslave or kill another.) Maximizing actual human liberty requires some coercive restraint, imposed by the state; this is why humans leave the state of nature and enter political society, delegating to the state the authority to impose coercive restraints when necessary to enhance liberty. Any effort to measure the quantum of liberty enjoyed today compared to that enjoyed 20, 50 or 100 years ago must acknowledge this fact and include some methodology for defining and measuring the sort of actual human liberty --- one might say actual human welfare --- that is the object of government to enhance.

The Antitrust Legacy of Justice Stevens/One Irony

Law360 has published an article on the judicial legacy of retiring Supreme Court Justice John Paul Stevens (pictured above) and, in particular, his influence in some lower profile areas, such as Antitrust Law. The article quotes your humble blogger a few times. Here is a link to the article:

Here also is a link to an article I wrote on the antitrust jurisprudence of Justice Stevens, particularly his approach to non-standard contracts that can overcome market failure, about four years ago. I presented the paper at a conference on the Jurisprudence of Justice Stevens at Fordham Law School and was honored by the invitation to attend and participate.

Two cases not mentioned in the Law360 article also deserve particular mention, and I will also discuss a couple more along the way.   First, Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984) and second, Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007). Justice Stevens wrote the majority opinion in the former and joined the dissent in the latter. In the former the Court retained the per se rule against tying contracts but significantly altered the test so as to raise the bar for plaintiffs attacking ties.  In particular, the Court held that, to satisfy the "economic power" element of the per se rule, a plaintiff must show that the defendant possesses the sort of market power in the tying product market ordinarily necessary to establish antitrust liability in other contexts. Thus, mere product differentiation would not suffice to establish such economic power, as it had in prior cases. See United States v. Loews, Inc., 371 U.S. 38 (1962) (holding that possession of a copyright established presumption of economic power). As Judge Posner would later note, Jefferson Parish's definition of economic power "doomed" franchise tying cases from the 1960s and 1970s, which had found "economic power" sufficient to establish a per se violation in the mere ownership of a franchise trademark combined with the ability to impose the tie. See e.g. Siegel v. Chicken Delight, 448 F.2d 43 (9th Cir. 1971). By requiring proof of the sort of power required to establish liability in other antitrust contexts, Justice Stevens implicitly rejected those decisions. Indeed, the rejection was not necessarily implicit; the defendant in Jefferson Parish had a 30 percent share of the relevant market and operated under a trademark well-known to actual and potential customers. More recently, in Illinois Tool Works, Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006) Justice Stevens authored the opinion for the Court confirming what many had suspected for years, viz., that mere possession of a patent does not ipso facto raise a presumption that the owner of the patent possesses the sort of economic power necessary to establish a per se unlawful tying agreement. Justice O'Connor had said the same thing 20 years earlier in her concurrence in Jefferson Parish.

Jefferson Parish, then, is an example of how Justice Stevens helped incrementally undo some of the more extreme manifestations of antitrust law's inhospitality tradition, as he had helped to do in Continental T.V. v. GTE Sylvania (where he provided the critical 4th vote in favor of granting certiorari in the first place and then the critical fifth vote in favor of Justice Powell's masterful opinion). Sylvania rejected and overturned the per se rule against non-price vertical restraints such as exclusive territories and location clauses, holding that such non-standard agreements can facilitate the production of promotional information and thus enhance competition between manufacturers, so-called "interbrand competition." In NCAA v. Bd. of Regents of the University of Oklahoma, 468 U.S. 85 (1984) he cited Sylvania for the proposition that even horizontal restraints that reduce rivalry can in fact enhance interbrand competition and thus consumer welfare. Lower courts have properly read NCAA and Sylvania as undermining previous decisions purporting to ban as unlawful per se even horizontal restraints that are ancillary to a legitimate joint venture. See Topco v. United States, 405 U.S. 596 (1972) (banning as unlawful per se horizontal division of territories ancillary to legitimate joint venture). See e.g. Polk Brothers v. Forest City Enterprises, 776 F.2d 185 (7th Cir. 1985).

Leegin, of course, was a different kettle of fish. There Justice Stevens joined Justice Breyer's dissent, rejecting the majority's decision to overrule Dr. Miles v. John D. Park and Sons, 220 U.S. 373 (1911), which had banned minimum resale price maintenance. Justice Breyer's dissent is quite unconvincing. He invokes stare decisis in favor of retaining Dr. Miles, but in so doing contradicts several of the Court's previous decisions articulating a unique approach to stare decisis in the antitrust context. That is to say, while he invoked "stare decisis," he ignored caselaw repeatedly establishing that courts can (and should) adjust antitrust doctrine, overruling prior decisions if necessary, including at least one decision he joined --- State Oil v. Khan, 522 U.S. 3 (1997) (a unanimous opinion by Justice O'Connor).  Indeed, as I have argued elsewhere, the whole notion of a Rule of Reason, articulated in Standard Oil v. United States, 221 U.S. 1 (1911) (discussed in great detail in a subsequent post) implies that courts will apply the best version of economic theory when evaluating trade restraints and, moreover, will adjust antitrust doctrine in light of advances in economic theory. Or, as Justice Stevens himself said in National Society of Professional Engineers v. United States, 435 U.S. 679 (1978):

"Congress, however, did not intend the text of the Sherman Act to delineate the full meaning of the statute or its application in concrete situations. The legislative history makes it perfectly clear that it expected the courts to give shape to the statute's broad mandate by drawing on common law tradition. The Rule of Reason, with its origins in common law precedents long antedating the Sherman Act, has served that purpose. It has been used to give the Act both flexibility and definition, and its central principle of antitrust analysis has remained constant."

Those common law precedents, of course, required courts to reconsider and abandon doctrine when economic theory undermined the economic premises of that doctrine.  See Alan J. Meese, Price Theory, Competition and the Rule of Reason, 2003 Illinois L. Rev. 77, 89-92.

It's unfortunate that Justice Stevens did not prevail upon Justice Breyer to change his mind and join the majority.

Let me note a final bit of irony. Justice Stevens has repeatedly worked to limit the Constitution's protection for economic liberties dissenting, for instance, in decisions that provided modest protection for property rights. A classic case is Nolan v. California Coastal Commission, 483 U.S. 825 (1987) where a local agency attempted to condition the grant of a permit on a property owner's "agreement" to turn over a chunk of his property to the state, for purposes unrelated to the permit, without compensation. While the Supreme Court voided the condition as a violation of the Takings Clause, Justice Stevens dissented. At the same time, in National Society of Professional Engineers, mentioned above, Justice Stevens embraced the Standard Oil decision "hook, line and sinker." Standard Oil, in turn read the Sherman Act narrowly so as to avoid striking the statute down as inconsistent with the 5th Amendment's guarantee of liberty of contract. See Meese, Price Theory, Competition and the Rule of Reason, 2003 Ill. L. Rev. at 83-89. A broader reading, the Court said, would void all sorts of ordinary agreements and grind commerce to a halt. In the very same way, in National Society of Professional Engineers, Justice Stevens pointed out that reasonable commercial contracts are a sine qua non of productive activity. He also recognized that courts should not ban reasonable restraints and defined "unreasonable" in the same way the Standard Oil Court defined that term, namely, producing harm in the form of higher prices or reduced output due to an exercise of market power. By embracing Standard Oil and its Rule of Reason, Justice Stevens, perhaps unwittingly, embraced the very economic liberty he often tried to undermine in other contexts.